BIR Ruling

August 14, 1969 Messrs. Ross, Salcedo, Del Rosario, Bito & Misa P. O. Box 781 Manila Gentlemen : This refers to your letter dated July 30, 1969 requesting a ruling on the question of whether or not the sale by W. Maxfield of his shares of stock in Ker & Co. Ltd. is subject to Philippine income tax. llcd It is represented that W. Maxfield (hereinafter referred to as the Seller), a resident of Hamburg 1, Ellmenreichastrasse 20, West Germany, owned 203 preferred shares and 25,828 common shares of stock in Ker & Co., Ltd.; that Ker & Co., Ltd. (hereinafter referred to as the Buyer) is a corporation with business address at Conde de Gamazo, Manila; that by virtue of an "Agreement for Sale of Corporate Stock' executed in Hamburg, West Germany on June 13, 1969, the Seller sold all of his aforementioned shares of stock to the Buyer for and in consideration of the sum of P149,440.00, which amount will be remitted by the latter to the Chartered Bank (hereinafter referred to as the Bank), in Hamburg, West Germany for the Seller's account; that the stock certificates covering the said 203 preferred shares and 25,828 common shares are kept by the Bank in Hamburg; and that upon receipt of such payment, the Bank will deliver to the Buyer's representatives in Hamburg, all the stock certificates duly endorsed in blank by the Seller and with the requisite stock transfer stamps affixed. In reply, I have the honor to inform you that being a non-resident alien, the Seller is taxable only on income derived from sources within the Philippines. (see Secs. 22 and 53, N.I.R.C.; Secs. 5 and 7, Rev. Regs. No. 2) The weight of authorities is to the effect that the location of the source of gains from the sale of personal property rests on the "place of sale" theory. (Chap. 45, Vol. 8 Mertens) With respect to capital gains on the sale of personal properties, like the shares of stock in this case, Section 37 (e)(2) of the National Internal Revenue Code considers the place of sale as also the place or source of the capital gains. In ascertaining the place of sale or the source of income, however, the determination of when and where title to the goods, passes from the vendor to the vendee is decisive. Thus, when the negotiation, perfection and consummation of the contract of sale of shares of stock were all effected abroad, it follows that title to those shares passed from the vendor to the vendee at said place, from which the incidents of ownership were vested on the buyer. (See Collector of Internal Revenue vs. Anglo California National Bank (Corker-Anglo National Bank), G.R. No. L-12476, (prom. Jan. 29, 1960) The rule is well established that title to property passes at the place of sale where the final act of the seller making effective the sale takes place. (Hazleton Corp. 36 BTA 908) In case of sale of corporate stock title passes with the delivery of certificates for the shares to the purchaser, where that is the intention of the contracting parties. (Johnston v. Laflin, 103 U.S. 800; Early v. Richardson, 280 U.S. 496) It is common knowledge that, as between the parties to the transaction, the property in shares of stock customarily passes in the ordinary and regular course of trade by delivery of the certificates indorsed in blank by the person to whom the certificates purports on its face to have been issued. (Powers v. Pacific Diesel Engine Co., 206 Cal. 334; 274 Pac. 512; McNeil v. Tenth National Bank, 46 N.Y. 325) In view of the foregoing, and inasmuch as the sale of the shares of stock adverted to in your inquiry took place outside the territorial jurisdiction of the Philippines, this Office believes and so holds that the gains, if any, realized by W. Maxfield of Hamburg, West Germany on account of such sale are not subject to Philippine income tax and consequently to the withholding tax. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue